In the last 40 years, derivatives have become increasingly important in finance. Futures

and options are actively traded on many exchanges throughout the world. Many

different types of forward contracts, swaps, options, and other derivatives are entered

into by financial institutions, fund managers, and corporate treasurers in the over-thecounter

market. Derivatives are added to bond issues, used in executive compensation

plans, embedded in capital investment opportunities, used to transfer risks in mortgages

from the original lenders to investors, and so on. We have now reached the stage where

those who work in finance, and many who work outside finance, need to understand

how derivatives